Most people fall in love one day or another and stay with their partner for the rest of their lives. Some others keep their love/hate relationship for many years. And finally, a few know when it is time to separate and continue their journeys alone. No, I am not talking about personal relationships… simply about your mutual funds portfolio!

Sell or not to sell, that is the question!

Regardless if you are making or losing money with your mutual funds, there are times when you need to make changes, to refresh your portfolio. Looking at track investment apps, you should select appropriate mutual funds and sell those which no longer fit your needs anymore.

8 Reasons why you should sell a mutual fund

#1 Management movements (follow the leader!)

A mutual fund is not much without its portfolio manager’s intelligence. Since the goal of a mutual fund is to beat its index of reference, tell me how the fund will be able to achieve it if it loses its fund manager? When you have a found a star, follow them and leave your mutual fund company behind.

#2 Increase in MERs (how can you make more money if THEY make more money?)

I would say that mutual funds biggest flaw lies within their ridiculously high MERs. If they increase their fees, you may tell them that you don’t need their investment services anymore. It is already hard enough for mutual funds to beat their reference market, increasing their MERs just retards them even more.

#3 Underperformers to be dropped (some managers are just losers)

If you hold a mutual fund targeting the Canadian index and they are in the last quartile for the past 3 years, it’s time to get rid of them. In my opinion, there are a lot of mutual funds that should not even exist. Most equity mutual funds should be replaced by ETFs or Index mutual funds (you can read more about this topic with ETFs vs Mutual funds).

#4 Investment strategies modifications (turn left! Turn left!)

When you bought a mutual fund in the first place, it should have been based on its fundamental investing strategy. If it changes in the meantime and no longer follows your investment thinking, there are no sound reasons why you should tag along with the portfolio manager on his new adventure. Being loyal to your investment strategy should yield the best results versus risk tolerance over the long term.

#5 Increase in volume (small is beautiful and big is…)

When you look at mutual funds historically, the most successful mutual funds were relatively small. In most cases, things went sour once they got bigger. Why? Because the fund manager has to move huge amounts of money toward a stock to keep the fund in its target range. This will obviously have a bigger impact on the stock itself as compared to the same transaction with 10 times less volume. Therefore, it becomes harder to benefit from market inefficiencies.

#6 When your investor profile changes (getting older, gramp?)

If you are getting closer to retirement and need to withdraw a part of your investments to compensate for a loss of income; you may want to increase the fixed income portion of your asset allocation and gradually exit the world of equities. This is why you should sell some of your equity funds to replace them by more secured funds.

#7 When you need money (duh!)

We all invest for one reason: to make money. But why do we want to make money? Because we need it from time to time! So, if you are making profits and you need the money for a specific project, you may want to sell your mutual funds and actually use your cash. Several advisors will try to convince you to keep your investments (and their commissions 😉 ) in your portfolio. However, unless you would be selling at a very bad time (last year for example), taking a loan instead of cashing in your mutual fund would not be a good idea.

#8 Realize profit (yeah!)

If you made a good move by investing in equity mutual funds early in 2009, you may think about realizing some profit taking and relook at your asset allocation. You are probably unbalanced right now and buying more bonds may be a good idea ;-). Since you are making money right now, it could be the perfect time to sell. Remember? Buy low and sell high 😉